“Despite the challenges,” Martinez said in a speech, “we have a tremendous opportunity.”

The session will focus on crafting a new budget package aimed at ensuring New Mexico has enough cash to continue paying its bills over the next year – amid a downturn in oil and natural gas prices and the nation’s highest unemployment rate.

Gov. Susana Martinez

Overhauling the tax code, Martinez said, “is both a short-term and a long-term solution.”

She didn’t offer specifics on what changes are necessary to break the budget impasse. But she said the state should eliminate virtually all the tax breaks built into the gross receipts tax code – which, in turn, would create a broader tax base and allow the overall tax rate to be lowered.

The overhaul isn’t designed to raise new revenue, but it could generate extra money to help next year’s budget if some tax breaks are phased out before the overall tax rate is lowered in a future year.

In a written statement, Senate Majority Leader Peter Wirth, D-Santa Fe, said many of the tax ideas backed by the governor were already rejected by Democrats and Republicans in the Senate. But he said he shares the goal of broadening the tax base and lowering the rate.

“Comprehensive tax reform is a good goal supported by legislators on both sides of the aisle,” Wirth said. “But tax reform has to be done right.”

Rep. Jason Harper, R-Rio Rancho, said he has been talking with Democratic leaders about how to craft a package of tax changes that both sides can support. The Martinez administration is offering technical help to ensure the changes do what they’re intended to, he said.

“I’m really confident that with all these minds in the room,” Harper said, “we’ll come up with something even better than” the proposals debated in the last legislative session.

A Harper-sponsored bill cleared the House earlier this year but stalled in the Senate over concerns about whether it provided for too many changes too fast. Both chambers later passed a more modest attempt at overhauling the tax system, which Martinez vetoed.

But Harper said Thursday that he hopes negotiations can produce a “hybrid” tax bill – drawing from the previous proposals rejected by one side or the other – for consideration in a special session.

Harper and Martinez made their remarks Thursday at Sandia Resort and Casino at the annual conference of the New Mexico Tax Research Institute, a nonpartisan group that analyzes tax policy.

The Republican governor and the Legislature – where Democrats hold majorities in both chambers – have been at odds for months on a spending and revenue plan for the fiscal year that begins July 1.

State lawmakers passed a $6.1 billion spending plan and a companion bill that included about $350 million in new revenue generated by tax increases and the closing of loopholes. Both bills had bipartisan support in the Senate and passed along party lines in the House.

Martinez, in turn, vetoed the tax package and used her line-item veto authority in the budget bill to strip out funding for public colleges and the Legislature itself. She describes the absence of higher-education and legislative money as only temporary – a move to ensure lawmakers negotiate a balanced budget without tax increases.

Martinez has not set the date for a special session.

Legislative leaders have challenged her line-item vetoes in the New Mexico Supreme Court, and a hearing is set for May 15. The governor didn’t say whether she plans to call the Legislature into session before then.

She has repeatedly vowed to reject tax increases, but she has left open the possibility of generating new revenue through the closing of tax loopholes – positions that make the tax overhaul a key to helping resolve the budget impasse.

Democrats, in turn, say they already sent the governor a menu of tax options that would have helped raise revenue and put the state on track for a broader tax overhaul, even if she rejected some of the ideas.